MRG Evening Meeting – Is Television Advertising Profitable For Advertisers?
At the MRG evening meeting on Tuesday this week Sue Moseley, strategic planning director at TSMS, presented the latest findings from tvSpan. The single source panel provides a continuous measurement of both product purchasing and TV viewing from within the same household, allowing a detailed examination of the influence of TV advertising on individual purchasing decisions.
For fmcg advertisers such knowledge holds particular importance; this week saw US supermarket chain Walmart enter the UK arena promising to slash prices of daily groceries even further. As pressure on the fmcg category increases with such competition, the demand for quantification amongst advertisers rises.
To address this issue tvSpan embarked on a study into the medium term effects of advertising through television. Previous studies have found that short term advertising generates an immediate short term uplift in sales; those seeing TV advertising for a brand in the 28 days prior to purchase buy 5.2% more of the brand than those who do not, and the effects of the ads continue beyond 28 days.
However this does not identify whether during a budget year television advertising more than repays its costs. To answer this question tvSpan returned to the 10 large grocery product fields and the 113 advertised brands which had been analysed across the 2 year period to March 1998, and extended the analysis for a further year to attempt to quantify the medium term effects of TV advertising.
The study demonstrated the importance of repeat purchasing for fmcg brands. People make repeated purchases of the same brand – a purchase is followed by the experience of using the product which, if satisfactory, is likely to lead to a repeated purchase. On any one occasion they will choose from a repertoire of brands in their consideration set.
If advertising seen recently prompts the consumer to make a brand purchase they would not otherwise have made by prompting the brand up the consideration set, then the experience of using the brand may result in repeat purchases long after the direct stimulus to purchase resulting from seeing the advertising has been forgotten.
The analysis found that on average a brand purchase was followed by a further 22 purchases of the product category in the ensuing 12 months, of which the brand itself was repurchased on 9.6 occasions. Thus the subsequent brand loyalty was 43.8%. The subsequent loyalty amongst brand buyers is strong and declines only slowly over time.
The crucial issue, however, is whether marketing activities, either advertising or price promotion, result in similar repeat purchase characteristics over the medium term. If they do, the incremental sales generated in the short term also have an enhanced value in the long term.
The subsequent brand loyalty of those who saw TV advertising when they made their original brand purchase is marginally higher than those who did not see advertising. This implies that advertising must generate repeat purchasing in the longer term, since if its effect were only to increase purchasing in the immediate short term one would expect the subsequent brand loyalty to be lower.
By contrast the effects of price promotion are very much concentrated in the period during which the brand is on promotion. The immediate increase in brand purchasing when the price is reduced is offset by a lower subsequent brand loyalty in the following 12 months. Many buyers who buy the brand when on promotion are only prepared to repurchase when the brand is again on promotion.
Those who originally bought the brand on promotion show markedly less loyalty to the brand when prices are normal versus those whose original brand purchase was at its normal selling price. Indeed, rather than being loyal to the brand, some buyers would be better described at loyal to the deal.
To work out how many repeat purchases can be attributed to those who were originally stimulated to buy the brand as a result of the immediate influence of TV advertising, the number of original purchases were multiplied by the number of subsequent market purchases and the brand loyalty. Thus: brand purchases in the next 12 months = original purchases multiplied by loyalty.
This detailed analysis shows that half of the difference in repeat purchases is as a result of subsequent advertising exposure. With allowance made for repeat purchasing caused by the original advertising, it can be found that for every additional purchase stimulated by advertising seen in the short term, a further 5.6 purchases ensue in the following 12 months.
Comparing the amount an advertiser spends on TV advertising with the sales attributable to advertising during the course of the year has been worked out in the light of these facts. On average across the brands in this study the medium term effect accounts for 11.9% of annual sales – representing a rate of return of £2.33 for every £1 spent on advertising.
The study proves that TV advertising is an essential strategic weapon for profitable brand maintenance and development. It produces an immediate increase in sales, a quantifiable pay back during the budget year and plays a major role in building and maintaining brand equity in the long term.
This contrasts with the large, but only short term sales increases that price promotion achieves. The significant implication for advertisers is that they should weigh very carefully the value of sales gained short term by big price cuts versus the benefits of building the brand.